In picking Kristalina Georgieva, the Bulgarian chief executive of the World Bank, as their candidate to succeed Lagarde at the IMF, the EU made the best of a bad choice. To have picked Dijsselbloem would have been a disaster.

But the manner in which Georgieva was picked not only leaves the EU divided – she gained only 56 percent of the vote – but also confirms the illegitimacy of the entire process.

It is by historical convention that it is the Europeans who pick the Managing Director of the IMF. It is part of the Bretton Woods carve up that handed the World Bank job to the Americans.

Why should the rest of the world accept a new head for the IMF decided by politicking by a group of small to medium-sized European countries which no longer play the role in the global economy that they once did, whose recent track record of economic policy is miserable, who have entangled the IMF in the shambles of the Eurozone and whose weight is set to dwindle in future?

The balance of opinion is hardly surprising. How, after all, could anyone mount a cogent defense of the existing arrangement?

But agreeing that we must go beyond the Bretton Woods deal of 1944 is just the beginning of the discussion. The question then becomes what criteria should be used to decide a new balance of quotas and voting rights on the IMF board.

Voting rights are decided by a somewhat more rational mechanism than the convention that gives the Europeans the right to pick the person for the top job. The formula that is notionally used to decide the composition of the IMF Board is a weighted average of four factors.

The formula makes clear why the balance is as skewed as it is. The Europeans score highly in terms of GDP measured in market exchange rates and openness.

Another way of thinking about it would be to say that the IMF Board reflects the distribution of international banking in the early 2000s before the crisis. On that basis you can see why the Europeans would have the votes that they do.

Setting aside the question of whether this is an appropriate base on which to decide the power balance at the IMF, if one were to apply this formula strictly it would involve a major shift in favor of China.

By reducing the US below the critical 15 percent threshold, this would deprive Washington of its veto over Board decisions (which require a 85 percent majority) and would fundamentally upset the politics of the IMF.

Setting aside the question of whether the American Congress can actually be persuaded to vote constructively on the issue, if we imagine a reasonable discussion about the most minimal reform, would the solution lie in a combination of two changes:

(1) a reallocation of shares in favor of the EM

(2) combined with an increase in the majority required for decision-making, say from 85 to 90 %.

This would make the board more “representative” of the world economy today whilst giving a veto to the US, China and any substantial coalition of Europeans plus Japan. Or would that render the body dangerously incapable of making decisions?

Deadlock would be bad. The IMF matters, especially in a crisis.

In a piece I did for the Fund’s anniversary earlier this year, which I wrote before the current round of musical chairs began, I outlined some of the more fundamental issues of policy that need to be on the Fund’s agenda.

“Greening” finance is one of the hot themes amongst regulators and progressive central bankers right now.

Gillian Tett US managing editor of the FT has dedicated an entire section of the world’s leading financial newspaper to “moral money”.

For the insurance industry – a key part of the global financial system as the AIG fiasco revealed – there is every reason to believe that the rise in climate risk is an existential threat.

The risks associated with stranded assets are clearly a real problem, and on the side of climate campaigners, many are counting on fear of stranded assets to put paid to the global coal industry (if not nationalized coal industries) and other fossil fuel sectors to come. The Institute for Energy Economics and Financial Analysis is particularly forceful on this point.

Against the backdrop of Crashed, it was fascinating in this long piece for Foreign Policy to follow the flow of central bankers into the new terrain of green risk management. Of course not all of the central bankers are engaged with the issue. The Fed and the Bundesbank are not at the party.

But even those that are, are engaging climate change through the language and tools of macroprudential management. This provides a handy set of ideas and tools for immediate action. The various models of stranded risk they have developed are both fascinating and horrifying. There is some particularly fascinating work going on inside the Bank of England.

But this macroprudential framing of climate risk also serves to dramatically limit the way in which the climate challenge is conceived.

By treating climate change as an exogenous risk, by refusing to put their own role in the politics of credit-fueled growth at the center of the discussion, the central bankers are effectively side-stepping the basic insight of the anthropocene/capitalocene. For an agency with the power of a central bank to treat anthropogenic climate change as exogenous is to engage in a form of denial.

What the climate emergency demands is not a mealy-mouthed, greenwashed updated of Dodd-Frank, but a “whatever it takes” moment.

In putting this together I benefited enormously from a conversation with Eric Monnet in Paris and from encouragement provided by a group pulled together in London by Mathew Lawrence. Many thanks all around!

]]>https://adamtooze.com/2019/07/20/climate-crisis-central-banks-and-the-macroprudential-greening-of-finance/feed/1German Question(s): The shocks that remade German politicshttps://adamtooze.com/2019/07/14/german-questions-the-shocks-that-remade-german-politics/
https://adamtooze.com/2019/07/14/german-questions-the-shocks-that-remade-german-politics/#commentsSun, 14 Jul 2019 12:30:33 +0000https://adamtooze.com/?p=100255The post German Question(s): The shocks that remade German politics appeared first on ADAM TOOZE.
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In the course of writing Crashed I was so mystified by the illogic of German policy that I felt I should try to write a book about Germany since reunification in 1989. Last summer I even started work on it.

I wanted to get deeper into what Hans Knundani in the Paradox of German Power has aptly described as Germany’s “semi-hegemonic” role.

Why, then, is Germany less mighty than it looks? First, its size can be a weakness … too small to dominate Europe (proportionally it is about as big in population terms as California in America) but big enough that others feel daunted and seek to contain it … Second, Germany’s establishment is different. America has a powerful executive, Britain has a high degree of centralisation and France has both, but in Germany power is diffuse and plural. Opinion is more diverse than the notion of a monolithic German interest and outlook allows … So multilayered and multifaceted are German politics and public life that the country can be in fact frustratingly introverted. Even at the peak of her powers, Mrs Merkel was more a crisis manager than a visionary leader.”

In Crashed I had already begun to map much of this terrain. And in the wake of that book, the German project seemed like a “safe” place to go. Amidst the exhaustion, taking stock and returning to Germany seemed deeply attractive.

Since then, as the after-effects of Crashed have worn off, my need for that kind of reassurance has receded. So I’m focusing my attention on another project to do with climate and energy. I’ll address my German questions not in book form but cumulatively, in essays, reviews and blogs.

Wherever I go, I end up coming back to it anyway.

I

In June, which we spent in Italy, I did two pieces with German themes. The first piece was for Social Europe on Europe’s coal problem, which is really a Polish-German problem.

The trigger for the piece was the dismaying conclusion of Germany’s “Coal commission”, which advised Berlin earlier this year that Germany should not exit brown coal-fired electricity generation until 2038.

Once again, a highly sophisticated German political compromise resulted in an outcome that fails to meet the EU’s climate policy targets, let alone the urgency of the climate emergency.

In the second much longer piece for the LRB I had a swing at analyzing the transformation of the German political scene in recent decades.

The LRB piece was triggered by a request to review Oliver Nachtwey’s Germany’s Hidden Crisis, which appeared in German with Suhrkamp in 2016.

It is to Verso’s great credit that they translated Nachtwey’s book and it was a pleasure being in conversation with Oliver recently when he visited New York, but I felt that the Anglophone audience needed more context.

II

Nachtwey’s book is a product of wide-ranging debates on the German left about their country’s politico-economic transformation since the 1970s. That debate is not merely an intellectual struggle. It is a practical political argument that resulted in the division of progressive politics in Germany, monopolized in the postwar period by the SPD, first with the formation of the Greens in the early 1980s, then in the early 2000s with the splitting off of the left-wing of the SPD as DieLinke in the arguments over the Agenda 2010. Those splits have now been mirrored on the right-wing by the formation of the AfD as a real challenger to the CDU.

Played out both at the national and the federal level this centrifugal political dynamic accounts for much of the multilayered and multifaceted complexity highlighted by Cliffe.

It would be interesting to compare the three moments of “radical centerism” that produced those divisive shocks to the German political system:

in the 1980s, Helmut Schmidt’s adherence to the NATO “Doppelbeschluss” (twin track decision) for the deployment of medium-range nuclear missiles;

in the early 2000s, the Red-Green government’s decision belatedly to adopt the North Atlantic neoliberal agenda of the late 1990s;

in 2015, Merkel’s open borders decision during the refugee crisis of 2015 (preceded by her compromising Eurozone diplomacy that triggered the formation of the AfD in 2013).

There is a rich history to be written of each of those moments. Specifically with regard to Agenda 2010 and 2003 I barely scratched the surface in the LRB essay.

Meanwhile, almost week by week, new evidence is produced by economic research confirming the basic contention of Nachtwey, Fratzscher et al, that a devastating shock was delivered to the German social model in the late 1990s and early 2000s.

III

Most spectacularly the IMF in its recent Article IV consultation with Germany highlighted the connection between Germany’s surging inequality and its vast and destabilizing current account surplus. For ease of understanding the IMF even offers a handy flowchart illustrating the connection between inequality and macroeconomic imbalance.

Today, Germany runs a trade surplus which, in proportion to GDP, is far in excess of the levels achieved during the golden age of the “economic miracle”.

And, as the IMF shows, the surge in that outsized current account surplus from the early 2000s onwards coincided with the surge in income inequality.

German inequality may not be at the levels we are familiar with in the US but the shift has been dramatic. And that shift coincides exactly with the period of the Red-Green government. It is not reducible to the Agenda 2010 program, but began already in the late 1990s with the dramatic weakening of trade union bargaining power.

The one area where German inequality truly is stark is in wealth.

Not only does Germany have a cluster of immensely wealthy business owners, but the fact that the majority of the population still rent their homes rather than owning them means that there is relatively little wealth accumulation in the middle and upper middle class. Leveraged asset bubbles drive middle class and upper middle class accumulation in most other advanced economies.

To return to the shock of the early 2000s: as the IMF shows, it set in motion a dynamic which despite increasingly tight labour markets progressively squeezed the disposable income of German households. The shift in income from wages to profits and tax changes that discouraged the distribution of those profits lowered disposable income as a share of GDP between 2005 and 2017 by 6 percent.

In macroeconomic terms 6 percent of GDP is an enormous shift. Think almost twice the size of the defense budget in the US.

The shift in income away from households to the corporate sector has had a particularly dampening impact on consumption precisely because it has been concentrated on lower income households with a higher propensity to consume.

Lower consumption in turn translates into lower imports which helps to further increases Germany’s current account surplus. No one would worry about Germany’s buoyant exports if they were matched by equivalent imports. It is the chronic depression of German domestic demand (both consumption and investment) that is the cause of so much international criticism.

Here the IMK report offers a telling graph on German domestic demand.

Viewed from the labour market side the IMK report, from which they really ought to produce an english-language slide pack, shows the persistent failure of German wages in the early 2000s to match productivity gains.

This produced a unit labour cost gap between Germany and the rest of the Eurozone which, more than a decade later, despite a few good years of wage growth in Germany, still has not closed.

Relative to 2000, Germany’s unit labour costs in 2018 were still slightly below those of Portugal after that country had suffered a decade of miserable recession.

IV

In diagnosing these imbalances, the economic side of the political economy, comes easily. To have this degree of consensus amongst all leading authorities is remarkable.

The IMF’s Article IV comments on the link between surging inequality and the outsized current account surplus surely warrants a response from the SPD-controlled Finance Ministry.

But the politics still leaves me scratching my head. I feel I need

(1) a thicker description of what happened in the Red-Green government that opened the door to Agenda 2010. Anke Hassel and Christof Schiller’s Der Fall Hartz IV is outstanding. I also found Gregor Schöllgen’s biography of Schröder illuminating. But I want more.

(2) a structural comparison of the three moments of radical centrism – in the early 80s, the early 2000s and in the 2013-15 – that have done so much to reshape the German political landscape. (I am bracketing reunification as sui generis)

(3) a clearer map of how the political complexity and the dramatic socio-economic shifts unleashed in the 2000s helped to frame and limit Germany’s semi-hegemony. I am still not convinced I understand the politics that drove/drive eurozone crisis management in Berlin.

(4) a better and more detailed grasp of how these same forces affect the profoundly disappointing course of Merkel’s Energiewende and Germany’s laggardly decarbonization.

We conventionally date the onset of the Great Depression to 1929. This make sense from the point of view of conventional business-cycle analysis. But the Great Depression wasn’t “great” because it was a conventional recession. It was great because it blew the interwar order apart. And it wasn’t in 1929, it was in 1931 that it became obvious that the downturn was going to have that kind of impact. In fact as I argue in Deluge the initial effect of the recession was to bind the status quo powers – US, UK, France, Japan – more closely together. It was in 1931 that the world really came apart. The banking systems of Austria and Germany failed and then the UK left the gold standard, followed by a large part of the rest of the world economy.

I really liked Swiss historian Tobias Straumann’s elegantly targeted new history of the politics and economics of 1931. I did a review for the FT this weekend.

The story-telling is compelling. The message is powerful and delivered with a real punch. In fact I was so impressed that it made me reevaluate the short-book genre.

1931 is longer than an essay, of course. But you can actually finish it at a single sitting on a long flight or a weekend of reading. As a result it lodges itself in your memory as a single powerful statement about the toxicity of large-scale intergovernmental public debt under democratic conditions.

I end the review quipping that Europe needs a German edition of Straumann’s book as soon as possible. And I am delighted to learn from Tobias that a German version is in the works.

I have various differences with Tobias on points of emphasis that I will expand upon on a future blogpost. You can infer them from a reading of Deluge, which begins the story in the middle of World War I, but finishes on the same terrain as Tobias. The idiosyncratic chronology of Deluge is chosen precisely to make this point: the American-centered order of global power that emerged after 1916 suffered its first shipwreck in 1931.

My only real frustration with Tobias’s book is that he didn’t make use of Robert Boyce’s The Great Interwar Crisis and the Collapse of Globalization. If you liked Deluge you will like Boyce’s book.

Boyce’s book is essential reading on the political economy of the interwar period. It is particularly good on 1931 . The fact that it isn’t in Straumann’s bibliography is indicative of the way in which it fell between the stools. It is rather too heavy on the economics for the much diminished crowd of diplomatic history still interested in the interwar period. It is far too heavy on the history for the economic historians of the school of Barry Eichengreen, who are Straumann’s main point of reference.

The concluding chapters of my Deluge are heavily indebted to Boyce. I would also recommend his earlier book British Capitalism at the Crossroads, 1919-1932: A study in Politics, Economics and International Relations. For an amazon link click here.

The significance of all this is that both Boyce and I agree in taking a much dimmer view of the position of the British and the Americans in 1931 and are have much more sympathy for the French. Straumann is even-handed in his treatment but underestimates the gallo-phobia in London and Washington DC. Why that in turn matters is that Boyce and I adopt a revised version of the “hegemonic failure” interpretation of the interwar crisis, originally advanced by Kindleberger, as opposed to the polycentric model of “cooperation failure” favored by Eichengreen, Clavin et al. This in turn is related to developments in the study International Political Economy in the post Bretton Woods era.

Much more on this in a future blogpost. For now, get yourself a copy of Straumann’s book for the beach!

Between 2014 and 2016 the US dollar appreciated by almost 25 percent against a basket of world currencies. The shift was driven above all by the relatively strong US recovery and the unsynchronized Fed move to “normalize” interest rates, whilst the ECB was embarking belatedly on its massive QE exercise. The dollar’s strength has since then sustained at that higher level, though in recent months (as the Fed turned dovish and trade war talk escalated) there have been signs of weakness.

In the last couple of weeks smart people have been posting a rash of papers, talks and blogs about the implications of this dollar strength.

One would expect a shift of this scale to have a significant impact on global trade and the US trade balance in particular. This has political significant in light of Trump’s turn to protectionism and general hand-wringing about the death of the liberal order etc.

In retrospect it is one of the key chapters in the story of global recovery since 2008.

Hyun Song Shin in his fascinating work linking financial to trade flows makes the point that a strong dollar makes financing complex value chains more expensive and thus tends to inhibit trade, independently of any tariff.

Brad Setser at Follow the Money has outlined a set of guidelines for deciding whether a strong dollar is due to other people’s manipulation.

Brad has South Korea and Thailand in his crosshairs.

Matt Klein at Barrons has been insisting on the classic question of how the strong dollar affects the US trade balance. He equates the kind of appreciation of the dollar seen since 2014 to the impact of a tariff levied against US exports.

As Robin Brooks of the IIF pointed out this morning in a tweet, the strong dollar shock of 2014 (plus the oil price collapse) generated serious deflationary pressures. In his view this means that the problem of lowflation is not so much structural as due to (transient) shocks.

And Colby Smith with her ear to the ground at the FT has a piece this morning canvassing market opinion on the continuing strength of the US currency, even in the face of the Fed’s more dovish positioning.

]]>Notes on Social Theory: Histories of the Crisis of Democracyhttps://adamtooze.com/2019/05/17/notes-on-social-theory-histories-of-the-crisis-of-democracy/
https://adamtooze.com/2019/05/17/notes-on-social-theory-histories-of-the-crisis-of-democracy/#commentsFri, 17 May 2019 10:25:06 +0000https://adamtooze.com/?p=90502A take on the "crisis of democracy" literature and related essays.

After many, many months in the works, the New York Review of Books just published a piece in which I attempt to review four of the new books about the crisis of democracy – Mounk, Levitsky and Ziblatt, Snyder and Runciman – and locate them in relation to debates about the fate of US politics.

It wasn’t an easy assignment and it was reassuring to see that several folks have been struggling with the same job. I particularly appreciated Jan-Werner Müller’s take on Levitsky/Ziblatt and Runicman in The Nation.

There are connections to the political argument that runs through Crashed, which I need a bit more space to tease out over the summer.

In the mean time the NYRB piece complements two other essays on democracy that I’ve had to write in recent years.

One was in Geschichte und Gesellschaft on narratives of democracy and democratic crisis. Download here: Tooze Democracy GG 2018

My take on David Runciman’s thesis developed between 2018 and 2019 also through getting to know David better.

But the debate about contemporary democracy, particularly in Europe, goes back well before 2016. And the first essay I had to write about the topic span not out of Crashed but out of Deluge. It was published in the volume edited with Tim B. Müller on democracy and WWI (Tim did all the work!). The english version of that essay can be downloaded here: Tooze WWI democratization

I don’t write that often in German right now. But I have had to do so twice in the last few weeks and it has been a refreshing change.

It was a particularly pleasant task to write a laudatio for my friend Danilo Scholz who this year won the prestigious Heinrich Mann prize of the Academy of Arts (Akademie der Künste) in Berlin.

It was originally an East German prize and the list of previous winners is extraordinary. Before 1989 it went to amongst others Stefan Heym, Heiner Müller, Christa Wolf and Volker Braun. Since German unification the honorees have included Götz Aly, Wolfgang Schivelbusch and Karl Heinz Bohrer.

So, for Danilo to win the prize was pretty mind-blowing and to be asked to give the laudatio was no less so for me.

After I gave my talk, Danilo followed it by a typically brilliant and acerbic reply that left the representatives of the Academy somewhat stunned. I’ll leave it to him, or some other venue to publish that in due course.

Anyway, here is the text in German with thanks to Jörg Feßmann of the Academy for editing:

]]>Framing Crashed (11): American Power and Global Orderhttps://adamtooze.com/2019/03/30/framing-crashed-11-american-power-and-global-order/
https://adamtooze.com/2019/03/30/framing-crashed-11-american-power-and-global-order/#commentsSat, 30 Mar 2019 15:23:50 +0000https://adamtooze.com/?p=85635The post Framing Crashed (11): American Power and Global Order appeared first on ADAM TOOZE.
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What does the election of Donald Trump in November 2016 mean for American power and for global order? Like everyone else I’ve been struggling to formulate a coherent answer. Like everyone else I find myself torn between competing interpretive impulses.

My meandering thought process has resulted in a series of essays, talks and blogposts the most recent of which is the long essay published in the LRB this week (which also has an audio version).

My other pieces, in what will no doubt be an ongoing effort, include the following:

A LRB winter lecture: video here. As you will see completely different than the essay that emerged from it.

I am collecting this material here in an effort to impose more clarity on my own thinking and to draw out connections that were not obvious to me in the mad rush of the last few months.

In framing this week’s LRB essay I am grateful for a provocative talk that Daniel Sargent of Berkeley gave to the AHA, in which he made a bold comparison between Trump and Napoleon. My LRB pieces engages critically with that suggestion, but I am truly grateful to him for posing the question in those terms. Anyone willing to give that kind of talk at the AHA is a friend of mine. This comment by Daniel Immerwahr is also worth reading.

In this week’s LRB essay, to speak in rather high falutin terms, my approach is synchronic. I start in the present and ask the question: has Trump actually broken anything fundamental? The answer I give is that his brand of Republicanism refuses assimilation by bien pensant global opinion. In political terms, therefore, the legitimacy of American power is at a low ebb. But this is a recurring problem of recent decades, driven by the long-term ideological and political development of the American right. We have to recognize that this is a feature not a bug of the real existing American order. But, despite this political culture clash, the basic structures of American power – military and financial – are not just intact, in important respects they are being reinforced. As I argue in Crashed, the 2008 crisis reasserted dollar dominance. American military dominance remains extraordinary. It was the Obama administration that initiated the “pivot” to Asia. The Trump administration is ramping up and modernizing defense spending. In that sense the basic pillars of American world order remain in place, but they are no longer buttressed by strong, affirmative political ties. The phrase I had echoing around in my head in writing the piece was “dominance without hegemony” (Guha), though that may overstate the point.

If there is anything truly novel about the current situation, it is not the progressive degeneration of the Republican party as a party of government, it is the spectacular shift in global power constituted by the rise of China. As the Trumpites never tire of emphasizing, a previous generation of American globalists actually facilitated China’s rise. It was a thrill at Georgetown to be on a panel with Bob Zoellick, who was a key figure in formulating US economic grand strategy in the 1990s and 2000s. Now Washington is in reactive mode. How that confrontation will play out remains to be seen.

What is unique about China’s rise? Its non-Western. It’s China! It’s gigantic. Far larger than any growth process that we have previously witnessed. It is astonishingly fast. It is deeply imbricated with Western capitalism. It is thoroughly modern in its approach to science and technology. Its political system is authoritarian and derived from revolutionary communism with Chinese characteristics.

It is the rise of China, not Trump’s antics that define our current moment as spectacularly new. This calls into question the entire narrative of Western triumph since 1989. If the West won the Cold War with the Soviet Union, did it win the Cold War that mattered? But the world historic significance of China’s rise goes beyond that. In its scale it dwarfs any previous “power shift” that we have witnessed in modern history. Western thinking about global order really has no categories for thinking about this problem, because our thinking about international relations is in fact framed by the period of Western dominance. This is a point I particularly emphasized on the Davos panel from round about minute 18 in the video.

There are, of course, those who imagine that China’s rise might be stopped in its tracks by some internal crisis – economic, ethnic, demographic, environmental, political. But that China skepticism has about it a defensive quality. Furthermore, at this point, a deep China crisis would itself be of world historic and world economic significance. And if such a crisis can be blamed by Chinese nationalists on the aggression of Western containment policy, the political ramifications are nightmarish. The stakes that we are playing for a terrifyingly high.

The other great global challenge that fundamentally explodes the frame of all our discussions about world order and American power is climate change. I addressed this issue at the very end of the LRB lecture in the Q and A at minute 1:33. I addressed it in a blogpost in 2018. It is my next writing assignment for Foreign Policy.

So much, for what you might grandly call the synchronic approach. There is also, of course, a diachronic approach to our problem.

The first piece I wrote on Trump appeared back in January 2017 for the German weekly Die Zeit. It is available in English here.

Writing for a German audience my first aim was to point out how much the experience of American power has varied across the world – folks in Central America are not going to be terribly shocked by the appearance of an “ugly American” in the White House. If there is anyone who truly is, it is decision-makers in the Federal Republic of Germany. For them, in particular, it is hard to imagine an American power that is not “good”. In part this is because Germany, in the form of the “hunnish” Kaiser and the evil of Hitler’s regime, was so crucial in the historic construction of America as the benign hegemon.

But, as I began to argue in the Die Zeit essay, understanding our current moment also requires a complex chronology of American power. Far from having been constituted as a solid chronological bloc extending from 1945 until 2016, American hegemony had to be made and remade. Its history has proceeded through several periods of deep crisis and contingency.

This diachronic approach to understanding the extent and limits of American world order, is what I returned to in the column for Foreign Policy that was triggered by Davos 2019. The diachronic approach seemed significant politically because reference to the New Deal, Bretton Woods and the Marshall Plan remain so salient in contemporary political debate.

This critique of Bretton Woods nostalgia engendered a debate with David Adler and Yanis Varoufakis of Diem25 about how to imagine the possibilities for a progressive economic policy beyond the very peculiar circumstances of the mid-century moment. This was further stimulated by the workshop on realism hosted by Matthew Specter and Daniel Bessner at Duke. I pursued this in a blogpost here.

This emphasis on discontinuity, contingency and conflict in the construction of American power is also, of course, in the mainstream of recent academic histories of American power and politics. Not for nothing have the 1970s emerged as a key point of focus in recent books by Meg Jacobs, Brands, Sargent.

The genealogy of our modern world, in which fiat money provides the basis of our economic constitution, has to be traced to the early 1970s. That was the moment at which Nixon withdrew American support for the gold standard. It is the moment of the first shock of globalization, the struggles over stagflation, the crisis of governability and the realignment of democratic politics in the west, the final bloody spasm of the Cold War in Asia – as impressively documented in Paul Chamberlain’s powerful new bookCold War Killing Fields – and the terrifying nuclear escalation in Europe of the early 1980s.

Focusing on the 1970s is also important, to understand the subsequent narrative. It was overcoming the crises of the 1970s that framed the great complacency that followed with the “victory” of the West in 1989, the “market revolution”, the “third wave of democracy”, the “great moderation”, the “Washington consensus”, the “end of history”, the “unipolar moment”, the “unification of Europe”. It is really that epoch of the 1990s that forms the reference point for the nostalgia of the Davos crowd. When they talk about a postwar moment they are really thinking about the aftermath of the Cold War not 1945.

But as I argued in the LRB winter lecture even at that moment, even in the 1990s, the appearance of stability and closure and moderation was in many respects deceptive.

The title of my LRB winter talk in February was taken from an interview with Tim Geithner, whose meteoric career took off in the 1990s. Even then, in what in retrospect seems like the heyday of a new American hegemony, it seemed to Geithner that America had been “defying gravity”. That phrase haunted me and I used it in the lecture as the key to offering a more fragmented, contingent and precarious view of American power in the 20th century.

The expanse of that argument went beyond what I thought I could pull off in a short essay, especially one written in the hungover, hectic and jet lagged weeks that followed Dana and my fabulous wedding celebrations in NYC and London. So, in the LRB essay I opted for the more compact synchronic take. But the diachronic argument still needs to be made.

Shortly after returning from London I had another chance to do so in the Lloyd George lecture at Georgetown. Since this is a massive file I will post it to a separate blogpost to follow as soon as time permits.

Davos 2019 was a downbeat affair. That at least is how regulars described it To a newcomer it did not seem that way. Indeed, that gloomy assessment would seem to call for a reality check. Most thoughtful people are a lot gloomier than the folks you bump into at Davos. The 2019 meeting may not have had heroes to celebrate. The luster may have come off crypto. But if Davos lacked pizzazz, neither was it overshadowed by the sense of fundamental crisis that should surely color any realistic assessment of the current world situation.

It may sound paradoxical, but is it not the case that our sense of what is realistic is as much defined by mood (Stimmung) as it is by specific empirical facts?

In this sense the mood of Davos is profoundly unrealistic. What sets the tone is a Vegas-style festival of corporate PR and self-presentation, adorned with a barrage of exhortatory slogans worthy of a Mao-era pep rally. Amongst the most crass this year were the following:

“Goal 17 Partnership Space” – #Solvable – the venue for an amorphous grouping whose projects included “building an economy that works for 8 billion”.

A message from Philip Morris International: We are delivering a smoke-free future, but we can’t do it alone. We ask the world’s leaders to join us in a conversation: 1.1 billion cigarette smokers deserve better options

As Politico commented, at Davos it is no longer enough to offer “a mere space, lounge, cafe, chalet, house, church, school hall, center, sanctuary, hub, lodge, or even a dome. People wanted more.” They wanted pavilions. Perhaps the most loony of all, organized by an group called Broadlights, offered a “Wisdom Accelerator for Youth”.

Meanwhile, a “Global Talent Competitiveness Index” launched at a local museum. And the 25th Annual Crystal Awards honored “exceptional artists and cultural leaders” whose contributions are improving the state of the world best represent the “spirit of Davos.”[2]

If you aren’t used to it, the sheer pace of self-celebration is exhausting. The bombardment is so relentless and multi-directional that it is easy to feel that there is no place to which to with withdraw. No place from which to launch a critique. Searching for a hook I turned to the manifesto that opened the conference. This appeared under the name of World Economic Forum (WEF) founder Klaus Schwab and it was, in its own right, remarkable testimony to a solution-orientated approach to world affairs. Calling on world leaders to set about building “Globalization 4.0”, Schwab invoked the “postwar” moment in which world leaders “came together” to build a foundation for decades of growth.

The manifesto was a document so provocative to a historian, that through the hangover of my first WEF meeting, I felt moved to offer a reply. My guiding question being: How does Davos-talk relate to thinking realistically about the history of global order?

I

My hot take, which appeared in Foreign Policy last week started as follows:

Klaus Schwab, impresario of the World Economic Forum, released a manifesto in the run-up to this year’s annual meeting at Davos in which he called for a contemporary equivalent to the postwar conferences that established the liberal international order. “After the Second World War”, Schwab declared, “leaders from across the globe came together to design a new set of institutional structures to enable the post-war world to collaborate towards building a shared future … The world has changed, and as a matter of urgency, we must undertake this process again.” …

Schwab is not the first to make this kind of appeal. Since the financial crisis there have been repeated calls for a “new Bretton Woods”—the conference in 1944 at which “leaders from across the globe came together to design” a financial system for the postwar era, establishing the IMF and the World Bank in the process. It was the moment at which American hegemony proved its most comprehensive and enlightened by empowering economist-statesmen, foremost amongst them John Maynard Keynes, to lead the world out of the postwar ruins and the preceding decades of crisis. Under Washington’s wise leadership, even rancorous Europe moved towards peaceful and prosperous integration.

This is a story with wide support in places like Davos. It’s also one that deserves far more scrutiny. Its history of the founding of the postwar order is wrong; more important, its implicit theory about how international order emerges—through a collective design effort by world leaders “coming together” to reconcile their interests—is fundamentally mistaken. What history actually suggests is that order tends to emerge not from cooperation and deliberation but from a cruder calculus of power and material constraints.”[4]

As I went on to point out, the Bretton Woods conference of 1944 was not in fact a postwar conference, but a wartime gathering of the Allies.

The meeting was not so much a cooperative discussion as an argument over the extent of American power. Furthermore, most of the blueprints devised at Bretton Woods were doomed to remain on the drawing board. The International Trade Organization was abandoned and replaced by the lumbering GATT. Amidst postwar crisis and the onset of the confrontation with the Soviet Union, the Bretton Woods system was stillborn in 1947. Even the basic exchange rate system did not come into operation until 1958 and within ten years it was clear that it faced a terminal crisis. Genuine tariff reduction did not start until the Kennedy round of GATT in the mid 1960s and it proved counterproductive from the point of view of the stability of Bretton Woods.

The world economy as we know it today was not born out of “postwar agreement” but out of the chaos of the disintegration of Bretton Woods in the 1970s. It was that collapse that gave us fiat money, floating exchange rates and unfettered capital mobility.

II

Of course, this kind of point scoring is an easy game for a historian to play. Given that the history of the postwar moment has been exhaustively investigated, the real question is what gives the saccharine Davos-version of the “postwar moment” its currency.

Is the WEF’s voluntarism a reflection of the fact that they exist in a bubble of upbeat policy-talk? Or are they simply in bad faith? Surely they cannot actually believe that they can deliver what their slogans promise. Perhaps all the do-gooding rhetoric serves simply as window-dressing for a junket that serves other purposes.

Thanks to the success of the Davos meetings, Klaus Schwab’s WEF has grown into a medium-sized global enterprise. Its annual budget now stands at $338 million a year. It would be easy to conclude that the real business of Davos are not Schwab’s manifestos, but the parties, the “bilateral” side-meetings, the occasions for grandstanding enabled by the extraordinary concentration of global media in one place for one week.

This kind of critique is biting and perhaps realistic but it also has the effect of reducing the talk at Davos to mere window-dressing. It denies the sincerity and purpose of the WEF organization and the dozens of NGOs who attend. Perhaps then, the problem is different. The references to the “postwar” are, in fact, sincere, but they are an instance of false memory. The postwar that Davos truly hankers after is not the aftermath of World War II, but the aftermath of the Cold War, 1995 not 1945.

May 1995 — Peter Sutherland congratulates Renato Ruggiero, his successor as Director-General of the WTO, against the backdrop of the murals that once decorated the ILO’s headquarters.

1995 not 1945 was the moment when one might talk of globalization not only in itself but for itself. 1995 was when the WTO – the reincarnation of the ITO aborted in 1950 – actually came into existence. But this postwar too was not a moment merely of cooperative leadership. 1995 too was the product of a power struggle. Not for nothing is it remembered as the unipolar moment. It was unipolar in a double sense: the collapse of the Soviet Union and the humbling of organized labour in the West. It was indeed a remarkable moment of globalizing grand designs.[5] But it was not the grand designs that founded our current age of globalization, but the massive concentration of power on the US and its allies.

In the end, there simply isn’t any serious way of thinking about international order without thinking about power. Indeed, so tautological is the relationship that one is tempted to say that order is a particularly addictive euphemism for power. And that, once more, forces the question. What is Davos doing when it talks of the need for a global gathering to settle the terms of globalization 4.0? Who does it imagine will convene that meeting and who will set its terms?

I concluded the Foreign Policy piece with the following:

Since 2008 that new order has come under threat from its own internal dysfunction, from oppositional domestic politics and the geopolitical power shift engendered by truly widespread convergent growth. The crisis goes deep. It is not surprising that there should be calls for a new institutional design. But we should be careful what we wish for. If history is anything to go by that new order will not emerge from an enlightened act of collective leadership. Ideas and leadership matter. But to think that they by themselves found international order is to put the cart before the horse. What will resolve the current tension is a power grab by a new stakeholder determined to have its way. And the central question of the current moment is whether the West is ready for that. If not, we should get comfortable with the new disorder.

What matters in assessing the future prospects of world order, to be blunt, are the web of economic, technological, political and security policy relationships around China and its relations with the other major powers i.e. the United States, Europe, Japan and Russia.

III

In the immediate aftermath of Davos, I was too harassed and addled by jet lag to realize the connection between the Foreign Policy piece and the theme of the workshop on realism, which Matthew Specter and Daniel Bessner assembled at Duke this weekend. But when a twitter buddy summarized the gist of the piece as follows:

“If Davos had a realistic account of how order came about they would be less enthusiastic in calling for a new one.“

… the penny finally dropped.

If it were not operating in euphemisms, the question posed by Davos would be the question posed by E.H. Carr in the 1930s.[6] When the balance of power shifts, how does one engineer a peaceful adjustment of international order? This is not merely a matter of brute force, but power cannot be eliminated from the equation. In thinking about the problem of order dividing our intellectual options between realism and “idealism” or “liberal internationalism” is as unhelpful now as it was when Carr refused that alternative. What he tried to do in his Twenty Years’ Crisis was to articulate a synthesis. Surely that is the minimum to which we should aspire both intellectually and practically.

E.H. Carr (1892-1982)

The kind of power shift that Carr had in mind was preeminently a question of nation states and empires. Today that is articulated above all around the Sino-US relationship. No new global order can emerge without at least the tacit consent of both of them. But it is not just geopolitics and security that are at stake. What talk of Bretton Woods foregrounds is the relationship between geopolitics and geoeconomics and the question of political economy i.e. the relationship between private economic interests and the state system.

In ruminating on this question I found myself drawn back not only to Carr, but also to the intellectual tradition of the Frankfurt school.

Starting out as a historian of Germany, I learned to be skeptical about talk of economic orders by reading Franz L. Neumann and his colleagues on the political economy of interwar Germany and above all Neumann’s Behemoth: The Structure and Practice of National Socialism 1933-1944.

The basic insight of the Frankfurt school legal theorist – that there is no natural harmony between developed capitalism and legal, political and social order; that modern capitalism is a fundamentally disruptive force that constantly challenges the rule of law as such – could hardly be more germane today. As William Scheuermann puts it in Frankfurt School Perspectives on Globalization, Democracy, and the Law (Routledge Studies in Social and Political Thought) (p. 2-5).:

“As a first step, we need to allow that structural attributes of neo-liberal economic globalization, as Neumann would have predicted, engender deep impediments to the establishment of the rule of law, despite the fact that most scholars on both the left and right tend to expect otherwise. If we interpret the rule of law as requiring that state action should rest on norms that are relatively clear, general, public, and prospective, the emerging legal substructure of economic globalization suffers from a paucity of rule of law qualities.”[7]

The basic insight developed by Neumann, Kirchheimer and their colleagues was that:

“the transition from competitive or classical liberal capitalism to contemporary monopoly or organized capitalism, in which large corporations gained a quasi-oligopolistic status and many traditional “free” market functions declined, inexorably undermined clarity, generality, publicity, and stability in the law. ….

As the social presuppositions of the modern rule of law in competitive capitalism decayed, large corporations increasingly tended to favor legal regulations having a vague and open-ended character. Given their power advantages vis-a-vis other social actors, vagueness and ambiguity in the law were best exploited by them, and loopholes in parliamentary legislation permitted privileged economic actors to subvert the intent of the lawmaker.“[8]

In Franz Neumann’s work, the problem of order is conceived above all in relation to law. But the characteristics of “clarity, generality, publicity, and stability” that define the ideal of the Rechtsstaat can also be seen as features characterizing the system of economic order more generally. And Neumann’s basic intuition that the alignment between advanced capitalism and order is anything other than obvious, can be fruitfully brought to bear on the problem both of the Bretton Woods era and our contemporary world.

IV

Rather than thinking of 1945 as a singular moment of enlightened cooperation it seems more realistic to see it as an extreme moment in the uneven and combined development of the world system. And those tensions manifested themselves in several ways at Bretton Woods.

Harry Dexter White and John Maynard Keynes at Bretton Woods, 1944

Most fundamentally the American delegation refused to accept Keynes’s intrusive system of a truly global International Currency Unit (ICU). At a moment of predominance why should the US abandon the central role conferred on it by the dollar? Why should the US, the dominant financial power of the future, allow itself to be bound by a currency system – Keyne’s ICU – designed by the British to cushion their decline from imperial status?

But Neumann’s critique alerts us also to another dimension less frequently commented on. Bretton Woods was a meeting about the future order of the world economy, but it was a meeting between governments. The discussion was led by Treasury officials. Even central bankers played second fiddle. In this respect, Bretton Woods was a key moment in the construction of that peculiar entity, the national economy, as an object of modern governance. What is surprising is how innocently so much commentary on Bretton Woods mirrors this historical contingency, faithfully reproducing the focus on macroeconomics rather than political economy i.e. the relation between state power and private actors.

The question that is begged is where was Capital in the Bretton Woods moment? Where were private businesses, the actual agents of capital accumulation?

To the extent that business was absent from the Bretton Woods scene, this was an effect of the massive extension of state power in the course of World War II. Or perhaps one should say the re-articulation of state-business relations (much of the “state” apparatus was after all run by businessmen and managers). But that state-centered model did not last. Soon Bretton Woods faced a heavy backlash led by Wall Street and its friends in the US Treasury. Eric Helleiner’s excellent book States and the Reemergence of Global Finance: From Bretton Woods to the 1990s (Cornell University Press, 1996) is particularly worth revisiting on this score.

What freewheeling bankers wanted in the postwar were not the capital controls and financial repression of the 1950s, but the market free-for-all created in the largely unregulated, off shore Eurodollar market hosted by the City of London. There they revealed themselves, just as Neumann would suggest, as subversive agents of disorder already in the 1950s.

As a macroeconomic reading suggests, fiscal deficits and trade imbalances destabilized the Bretton Woods system. But if its foreign exchange controls had not been constantly under assault from private speculation, the system might have survived. The story of the rise and fall of Bretton Woods cannot be told without accounting for the gradual decay of the wartime regime of national economic regulation and the reemergence of private finance as a force of creative destruction after 1945.

Given this backdrop, the breakdown of Bretton Woods was predictable. As was the blunt force effort to restore, if not order, then governability from the 1970s onwards. After a decade of inflation and a falling dollar, the shock to global interest rates, exchange rates and employment delivered unilaterally by Paul Volcker’s Fed was key to restoring order. But neither should it be surprising that that dispensation, which Ben Bernanke dubbed the “great moderation”, itself proved unstable and untenable.

There was much talk in the 1990s, in the unipolar moment, of a new order. But once again this reckoned without capitalism’s capacity for creative destruction. It was David Harvey who early on diagnosed the basic duality that defined the new order of neoliberalism.[9] It had both an ordering side and an ad hoc interventionist side. The former could not exist without the latter.

The financial crisis of 2008 revealed this dualism on a truly world historic scale. Reading the macroeconomic imbalances in the early 2000s, pundits imagined that the crisis would come in the form of a meltdown between the US and China. They imagined a geoeconomic-geopolitical crisis that would end with the collapse of the creditworthiness of the US government. Instead 2008 was a private sector crisis, sparked by the collapse of private mortgage securitization, the incoherence of financial business models, the inability of market instruments to offer adequate risk management, the tendency of cut throat competition to generate insolvent “bad actors” and the sudden collapse of confidence in collateralized money markets that produced an implosion in the private credit system of unprecedented scale.

Unsurprisingly, the 2008 crisis inspired much talk of a new Bretton Woods. The UN appointed Joe Stiglitz to head a commission. More consequential was the proposal from China’s central bank to convene a new Bretton Woods so as to end the dominance of the dollar. But neither proposal gained traction in the face of increasingly assertive management of the crisis by the US authorities.

The actual crisis response to 2008 involved a remarkable ad hoc fusion of business and state authority. If there ever has been an executive committee of the American bourgeoisie it convened on the afternoon of 13 October 2008 at the Treasury building to coordinate the distribution of TARP funds for the recapitalization of the major US banks. It was both a remarkably effective crisis-fighting measure and an astonishingly blatant example of the impossibility of upholding the conventional norms of regular, law-bound governance in the face of the crisis.

The congressional appropriation of $700bn had failed on its first attempt thanks to the resistance of right-wing republicans and left-wing democrats. TARP had passed on the second attempt festooned with promises to assist homeowners and guarantee congressional oversight. Now the Fed and the Treasury, headed by a former investment banker, were redirecting those funds as part of a recapitalization effort that was comprehensive in scope but actually designed to rescue the ailing commercial banking giants, Citigroup and Bank of America. The result was the partial nationalization of the commanding heights of US finance, but one which the clique of crisis-fighters declared would not be used to actually exercise command over America’s financial system. The Federal government was an essential but reluctant shareholder. One could hardly ask for a more direct expression of Neumann’s basic diagnosis: the survival of oligopolistic capitalism requires adhocracy. When the going gets rough, as it inevitably does, order goes out the window.

The counterpart at the global level to America’s crisis-fighting clique was the cooperation between central bankers and the network of liquidity swap lines through which the Fed supplied dollars to the global banking system. Behind them stood the great power cabal of the G20 leaders summit. In its new format the G20 convened for the first time in DC in November 2008. It is a self-constituted ad hoc grouping that in questions of economic governance has sidelined the UN. The membership of 20 was picked on the basis of GDP and population statistics in the late 1990s, by second tier officials working for the governments of US and Germany as part of the G8 forum.

Through technocratic bodies such as the Financial Stability Board and the Basle Committee, the G20 has authorized a new regulatory system for global banking, known as Basel III. Its core is the identification of a group of so-called Globally Systemically Important Banks, GSIBS. This group of 30 of the largest banks have been placed under the direct supervision of regulators and central banks. Their accounts and business models are subject to a negotiated form of direct supervision. In a striking confirmation of the basic prediction of Frankfurt School political economy, financial governance post-crisis has thus come to rely on an unmediated relationship between national central banks, global regulators and an oligopolistic cluster of giant transnational banks.

V

How should progressive politics relate to this baronial model of economic governance?

As Scheuermann shows, faced with the disintegration of legality under conditions of oligopolistic capitalism, Franz Neumann declared that the rule of law embodied normative values – generality, transparency, predictability etc – that progressives should defend. In the context of the capital labour struggles, which were at the heart of Frankfurt school jurisprudence, this makes perfect sense. The problem posed by the crisis of 2008, however, was different. What was at stake was not the long-term balance of class forces but a sudden circulatory collapse of the global economy. Faced with this kind of financial heart attack, the question of governance appears in a rather different light. Indeed, it is tempting to postulate an inverse relationship between the effectiveness of intervention and the commitment to order. Where it was conducted in the form of ad hoc and unprincipled emergency medicine, the crisis response was effective. The more closely intertwined the political and economic elite the more rapid the response and the smaller the collateral damage. Where elites were less tightly articulated, as in the eurozone, and there was an effort to employ a rule-bound approach the results were disastrous.

To a degree this comparison of American and European approaches to the crisis is unfair. One should allow for the fact that coordination problems are bound to be more serious in a complex organism like the EU. One should allow also for the particularly self-defeating ideology that informed the rules that the Eurozone attempted to apply – composed of a toxic mixture of legalism, fiscal conservatism and a misplaced attention to “sustainability”. But the point nevertheless holds. As Keynes recognized, a general theory of capitalist governance must be able to account both for conditions of stability in which law like behavior is the norm, and moments of crisis, when ad hoc intervention is called for. To recognize only the former and not the latter is a recipe for disaster.[12]

It is relatively easy to conceive of how to politicize rule-bound systems. One can debate the underlying norms, procedures etc. The question of how to politicize ad hocery is more tricky. What are the norms to apply in an exceptional situation? One possible opening is to highlight and to exploit the fissures in ideological conformity that the crisis produces. The crisis of 2008 and its aftermath exposed the fact that many if not all of the taken for granted assumptions of economic policy in the 1990s were poorly founded. Perhaps most spectacularly the IMF has abandoned its rigid advocacy of the absolutely unfettered mobility of capital. The Bank of International Settlements has become the source of a critique of standard international macroeconomics that points the attention of policy-makers squarely at transnational banks as key concerns of financial stability policy. And from there the net is widening to take in asset managers too.

Piggybacking on such technocratic discourse may seem like a poor substitute for genuinely radical politics. But another lessons of the crisis of 2008 and after are the limits of such politics under conditions of extremity. If globalized capitalism under conditions of partial democratic legitimation is the only game in town, the majority of the population, the “99 percent” may have an existential interest not in debating Ordnungspolitik, but in energetic and unprincipled discretionary action by technocratic crisis-managers, intimately connected to the business oligarchy. It is no doubt a third best option, but the alternatives may be even worse.

VI

Of course, not everyone agrees with this skepticism about the notion of economic order, not everyone is as willing to give up the Bretton Woods and what it stands for. The most thought-provoking reaction to my Foreign Policy piece came from Diem25 the pan-European party for which Yanis Varoufakis is the charismatic figurehead.

Since the publication of Varoufakis’s memoir Adults in the Room I have been engaged in an on and off discussion with Varoufakis and several other contributors about what the experience of Syriza in 2015 and Varoufakis’s account of it, tells us about the limits for radical politics in the Eurozone.

It was pure coincidence, but not completely surprising, therefore, that the appearance of my piece in Foreign Policy critiquing Davos’s false memory of the postwar moment was followed a day later by a piece in the Guardian by David Adler and Varoufakis calling for …. you guessed it … a refounding of the Bretton Woods institutions. In fact, it was the second of two essays by Adler and Varoufakis in the Guardian making the case for a return to the postwar moment.

On twitter Adler described my Foreign Policy piece in very flattering terms but commented that it ended on a “flat” note. I think this means that I didn’t offer a positive agenda. What is to be done?

The answer that Adler and Varoufakis give in their Guardian pieces is that the Bretton Woods institutions – the IMF and the World Bank – must not only be protected against the depredations of the Trump presidency. Adler and Varoufakis argue that the Bretton Woods institutions offer the left a valuable antitdote to provincialism. The IMF and the World Bank, along with the ILO, should be repurposed as instruments for a global progressive agenda.

In fact, Adler and Varoufakis argue, this would involve returning them to their original progressive purpose. The Diem25 pair are keen on the heritage of mid-century progressivism. They call for a Green New Deal. They take inspiration from FDR, Morgenthau (Henry not Hans) and Keynes. They want to return to 1944 and restage the battle over the future of the international financial system. This time they argue that a truly global, post-American order should prevail. A digital currency issued by the IMF should form the anchor of a new global currency order. It is a vision also favored by Joe Stiglitz and the UN Commission back in 2008-2009. Adler and Varoufakis want to mobilize its resources for a giant spending program to decarbonize the world economy.

All of this sounds attractive. But what, one must surely ask, distinguishes it from the voluntarism of the Davos crowd and their calls for a global gathering to shape globalization 4.0?

The Diem25 authors invoke the language of political mobilization. And their movement has done an impressive job gathering 98,000 members. But they are spread thinly across Europe. In May 2019 Diem25 will do well if it gains representation in the European parliament. This is hardly a political platform from which to mount the global institutional restructuring they propose.

Even assuming that Diem25 could gain some purchase on European policy, what bearing will that have on the politics of the IMF and the World Bank at this moment? Precisely because they are global, the main shareholder in the Bretton Woods institutions is the United States and the key issue of the present with regard to the governance of these institutions are not European calls for their democratization, but greater representation for China and other emerging markets, the concerns of whose policy-makers are hardly likely to align neatly with those of Diem25. Is there an unspoken hope that India’s democracy or China’s authoritarian leadership will sign up to the agenda of global institutional change?

This is not out of the question, of course. In Adults in the Room Varoufakis described his efforts to cut a deal with Beijing to relieve financial pressure on Greece in 2015. But he also describes how that tactical maneuver ended in disappointment when Berlin put its foot down. Neither Beijing nor Moscow wanted to antagonize Berlin over the politics of the Eurozone. Already in 2011 during the most critical phase of the Eurozone crisis, the German central bank made clear its opposition to financial experiments based on the IMF. With the full weight of the rest of the G20 upon her, Merkel stood firm and vetoed any attempt to leverage IMF resources for a Eurozone bailout fund.

Adler and Varoufakis end with a rousing appeal: “Internationalists must realize the power of these (Bretton Woods) institutions to transform the world for the better, and reclaim them as our own. The alternatives – the technocratic status quo and the strongman unilateralism that has emerged to challenge it – are simply unacceptable.”

Of course it is not the job of politicians to offer realistic narratives of the likely future. In this sense it is not their job to be realistic. Their task is to rally support around visions of how things might be different. That presumably is the spirit in which Adler and Varoufakis’s intend their appeal to refound Bretton Woods. The difficulty is to distinguish it from wishful thinking.

VII

In the end the more important criticism of Adler and Varoufakis is not that they are unrealistic in their ambition, but that they are unrealistic in their conception of where power lies in the global system. Once more the problem is their focus on Bretton Woods.

For the Diem25 authors as for Schwab and the WEF, Bretton Woods serves as a cipher for an imaginary moment of historic purpose and decision. It is a Punctum Archimedis – the point from which they imagine applying a lever to change the world. But this is a fiction. Nor is it an innocent one. It reflects a deeply rooted unitary and centralistic vision of sovereign power.

To move forward we need not only to rally substantial political forces and figure out international coalitions that have some chance of actually exerting leverage. We also need a theory of power that allows us to think beyond the sovereigntist mirage of Bretton Woods.

Late 20th and early 21st-century social theory offers us various alternatives but the most obvious is Foucauldian. Where progressive politics needs to be directed, on this view, would not be towards counterposing some new order to the anarchy of capital. Nor should it focus on a vain battle to seize what might appear to be the “commanding heights”. It should instead seek to gain influence over the lower levels and mechanisms of power where what passes for the regulation and governance of global capitalism actually takes place.

We should learn the lesson of the recent crisis: There was no new Bretton Woods in 2008 and that absence is telling. The world economy today is not divided up into national economic zones structured by the imperatives of mid-century total war. It really is the amorphous global conglomerate that we for so long have been saying it is. To hark back to earlier moments of concerted government-led cooperation under present circumstances is to indulge in gestural rather than real politics.

A profound reshaping of governance did take place after 2008. But it took the form not of a new Bretton Woods but of central bank negotiation and the new banking regulations of Basel III, known collectively by the moniker of macroprudential regulation. The branch of economics that addresses itself to the logic of those regulations and the financial flows they seek to tame is not macroeconomics but macrofinance. It, finally, takes the balance sheets of massive private corporations seriously as drivers of macroscopic economic dynamics.

The world of macrofinance and macroprudential regulation is a world dominated by bankers, central bankers, banking experts, lawyers and financial economists. It is where truly consequential regulations are shaped. It is in this zone that the critical balance between rule and discretion has to be worked out. It is a zone out of sight of mainstream politics, but not immune to politicization and to publicity. Publicity may be a disinfectant. It may also simply be employed as a threat. It is in this zone that expertise and politics can be most productively harnessed and may actually make a real difference.

There are a number of scholar-technician-activists already at work in this space. Most notably the indefatigable and brilliant Daniela Gabor (UWE) and her campaign for the regulation of shadow banking. The recent report on the shadowy Eurogroup by Bejamin Braun and Mariane Hübner of the Max Planck Institute released this week by Transparency International EU is another case in point. Varoufakis needs no instruction on the need to bring transparency to such institutions. He has done more than anyone else to politicize their operation.

Rather than making Quixotic gestures to a new Bretton Woods, it is precisely interventions of this kind that we should be seeking to reinforce with real political clout. Of course the World Bank and the IMF may be venues for this kind of work. But progress is more likely in an incremental form and from within.

This is not, however, a blanket argument for ad hocery. It may very well be that in questions of labour law, consumer protection and environmental standards the assertive promotion of the rule of law is the best bet for progressive politics. The argument is simply that progressive politics should not limit itself to Ordnungspolitik because remaining too wedded to the vision of a new order when faced with the concentration of power, its constant shifting and the sheer volatility of oligopolistic capitalism is unrealistic. And to that extent the invocation of the “postwar” and the memory of Bretton Woods are an unhelpful guide to the possibilities for progressive economic policy in the present.

]]>https://adamtooze.com/2019/02/09/framing-crashed-10-a-new-bretton-woods-and-the-problem-of-economic-order-also-a-reply-to-adler-and-varoufakis/feed/4Framing Crashed (9): Christophers’ The New Enclosure, Crashed and the problem of dirty and clean histories of neoliberalismhttps://adamtooze.com/2019/01/20/framing-crashed-9-christophers-the-new-enclosure-crashed-and-the-problem-of-dirty-and-clean-histories-of-neoliberalism/
https://adamtooze.com/2019/01/20/framing-crashed-9-christophers-the-new-enclosure-crashed-and-the-problem-of-dirty-and-clean-histories-of-neoliberalism/#commentsSun, 20 Jan 2019 10:39:02 +0000https://adamtooze.com/?p=80053Thinking about Brett Christophers book about land privatization and the question of dirty histories of neoliberalism.

It was an unlikely gig, you might think – discussing a hard-hitting piece of radical geography in the spirit of Doreen Massey published by Verso in the pages of the premier newspaper of global capitalism. But to their great credit FT’s excellent finance blog Alphaville had already run a guest column by Brett and the FT’s broad-minded literary editor Frederick Studemann was easily persuaded. And with good reason.

The New Enclosure is an essential contribution to the political economy of the UK and to our understanding of neoliberalism more generally.

Credit to the FT for giving it the space it deserves. As a reviewer it is gratifying to continue the boundary-crossing conversation about contemporary capitalism in the pages of the FT that for readers of my generation goes back to the 1980s dialogue between Marxism Today and the FT when folks like Martin Jacques and Charles Leadbeater formed the link.

In a recent review of Quinn Slobodian’s outstanding book about the post-Habsburg roots of neoliberalism, Globalists, I came to the conclusion that we needed to go beyond the history of generalized ideas about economic order, the kind of thinking to which Hayek wanted to limit economics, to investigate:

“the engines both large and small through which social and economic reality are constantly made and remade, tools of power and knowledge ranging from cost of living indicators to carbon budgets, diesel emission tests and school evaluations.”

This is precisely what Brett Christophers delivers. If you had not previously thought of public land management as a strategic site of power, the New Enclosure will blow your mind. In unforgettable passages Brett documents the squeezing of Britain’s civil servants into more and more claustrophobic cubicles.

If there is a sweet spot between Das Kapital and The Office that’s where you will find Brett’s book. My new fantasy would be for Armando Iannucci to do a film version.

But day-dreaming about the satirical genius of In the Loop was productive also in another sense. I loved the New Enclosure as an account of the operation of government under the imperative of neoliberalism. But what I craved was a deeper integration with economic history.

One angle that Brett clearly recognizes is the possibility of reading the entire process of privatization since the 1970s in terms of a logic of class enrichment. He notes this possibility but then does not explore it. As I remark in the review:

“As a historical analyst, Christophers is remarkably restrained. There is no doubt that property developers benefited enormously from privatisation. Those developers are big donors to the UK’s Conservative party, the major advocate of privatisation. Parliament is full of landowners, great and small. Christophers does not deny that profiteering by a new class of private and corporate landowners is one likely explanation for the privatisation drive. But he does not go down that muckraking path. One can only hope that others, building on Christophers work, will do so.”

In the last couple of days Brett has posted a piece – How Developers Bought the Tory Party – which fills the gap. It is great reading.

But I find it striking that in his book Brett adopts the restrained approach that he does.

As he says, one main obstacle to exploring the class enrichment angle is the lack of evidence. Dirty deals are done in the dark. And that is where they want to stay. You have to have the skills, connections, impulses and professional mission of an investigative reporter to go after them. It involves a certain amount of intellectual, personal and professional risk. If you get the wrong end of the stick you end up drifting off into the territory of crude “conspiracy theory” and, in the UK, quite possibly in court.

As I read Brett he prefers to offer his readers what he feels he can document for certain. He assembles his argument from material that is out in the open. Doing that is, in a sense, a higher intellectual game – we are all playing with the same pieces. And what Brett is able to show us is, after all, damning enough.

But does this kind of reconstruction go far enough? Don’t we need muckraking? Do we end up with a narrative that is overly clean?

I think Brett does a great job of making clear that his entire argument is operating within self-imposed limits. It is an analysis of the realm of government and governmental discourse. As such it makes a huge contribution. It provides a frame within which many other histories can be written. But reading Brett has left me worrying about the sanitizing effect of this kind of methodological choice. It has left me worrying because, as I am all too aware, the same criticism can be made of my book Crashed.

Is it too clean? Too respectable? Too locked within the discourse produced by the machinery that it seeks to anatomize? Not distanced enough? Too top down? Not angry enough? All these questions have been asked. And my answers would be even more inadequate if it were not for the interventions of close friends and brilliant readers of the manuscript who insisted that my version of the financial crisis and its aftermath should be dirtier. You know who you are!

One could, of course, defend oneself by arguing for a division of labour: “I’ll lay out the macrofinancial processes. Somebody else, who is good at it, can do the muckraking.” And I find this reasonable as a first line of defense.

As a stronger defense I would argue that explaining the financial crisis in terms of criminality, deceit and fraud actually has an ambiguous political effect. On the one hand it arouses indignation – “how did the bastards get away with that!”.

But by the same token the search for the evil doers can easily shade into a rotten apple theory when what we should be talking about is the barrel itself and the orchard the apples are harvested from (As the Marx of the “Paris manuscripts” might have said: rotten apples aren’t simply products of “nature”).

Seen in this way an explanation of the crisis that is as sanitized as possible serves a critical purpose. It focuses attention on the mechanisms that were perfectly legal and normal, but nevertheless produced disaster. The crisis was a feature not a bug.

But I cannot say that these defenses entirely satisfy me. At a personal level, I wonder about my tendency to flinch away from the dirtier and messier side of the historical drama. Is it significant that I prefer spy dramas to murder mysteries? Why did I write my first book about statistics in the Third Reich in part as a critique of Götz Aly’s much grubbier account of similar processes, consciously holding the Holocaust at bay? I exorcised some of those demons with Wages of Destruction, which is plenty grubby. But even there the pivotal figure is Albert Speer the ultimate Teflon-man.

Obviously, this isn’t just my personal problem. But I cannot deny that I feel it involves me personally, it touches something about my identity. And it is hardly surprising, given my personal trajectory in institutional and social terms, my class position and the folks I’m in conversation with.

Could one resolve this dilemma with a two-pronged approach – muckraking working side by side with macrofinance? Read one, then the other. Get the big picture and then delve into the dirty details. That delivers a one-two punch, which can, no doubt, be effective. But it begs the question of synthesis and comes with its own ideological risks.

Separating the two approaches, the clean and the dirty, reifies as a methodological alternative a social distinction that is an artefact of our legal system. This is why the critical investigation of “game playing” around banking regulation and tax evasion (both areas which Crashed slighted) is so important. Exploring how the boundary is crossed again and again reveals rather than reifying the constructedness of the distinction between legitimate and illegitimate, legal and illegal, normal and abnormal.

If one were to extend the argument of New Enclosure in this direction one might imagine a development that explores the blurred line between the offering of general reasons for land privatization, which Brett explores so brilliantly, and the pursuit of profit by developers. How were think tanks funded? Which MPs and ministers spoke when on which issues and who stood immediately to gain. It is the stuff of the good, old-fashioned critique of ideology. In our current world, we cannot do without it.

But I also wonder whether there is not another means of bringing the two sides together.

On the one hand you have the juxtaposition between the investigation of generalized governmental discourse and procedures, which is what Brett does so brilliantly, and the particularized, individualized business of deal-making and the extraction of profit by a variety of interests. But reading the New Enclosure what I really craved was not so much the investigation of individual shady privatization deals, but the broader macroeconomic context.

At this point I want to insert a typically apposite suggestion from Anusar Farooqui aka Policytensor. In response to the post on facebook he suggested:

“Doesn’t Minsky offer the connection you seek between the financial cycle and muck? The corruption and swindling is not random but a systematic feature of every mature cycle. One is almost tempted to say it is diagnostic. Like the construction of the tallest building, it makes for an excellent systematic short signal.”

I think this seems spot on. I dont use Minsky enough!

In any case, the shift to the macroeconomic level speaks to my usual preference for the macroscopic big picture. It has been said that “Tooze likes a good graph”.

The formal order that statistics impose on reality exercises a magnetic attraction, at least it does on me. And I would also defend the statistical approach as a way of capturing, at a high level of aggregation, the urges to profit and accumulation that muckraking investigations reveals on an individualized case-by-case basis.

A surging upward graph of profits and prices conjures the boisterous turmoil of animal spirits, in the same way that the brushstrokes of a painter evoke a raging sea. And we know that “behind” the graphs, and impelled by the movements they describe is the activity of the economy, where macro and micro merge. Price movements drive the restless activity of the land speculators and developers, which impel price movements.

The huge expansion of public land ownership that Brett so dramatically highlights took place broadly between WWI and the 1970s. That is also a period in which farmland and house prices were historically depressed.

The most widely accessible UK house price index is deeply misleading because it starts in 1952 at the trough of a cycle and show only an upward trend. But this followed after decades of decline that began around World War I. As one Barclays investment report comments, citing data from Neil Monnery and his book Safe as Houses: “the average house price in 1900 was just under £49,000, in 2017 terms. It took about 60 years for prices to rise consistently above that level, adjusted for inflation.”

The question that I would love to see explored, is the question of the relationship between the nationalization of land between 1900 and the 1970s and its shifting valuation. Was the repurposing and revaluing of land, which expressed itself in its price, a precondition for the huge increase in state ownership? Did the state act as a buyer of last resort? How did regulation and market forces interact?

Seen in these terms Brett’s narrative is framed by two great price movements. In the late 19th century it was the globalization of agriculture that sent farmland prices tumbling in Europe and broke the grip of the landed aristocracy. After World War I, the huge surge in agricultural production outside Europe and subsequent dislocation of markets dealt a further blow to commodity prices, from which they took half a century to recover.

From the late 1960s the unfettering of the monetary system and the expansion of credit made land and housing into an inflation hedge and an object of speculation both large and small. This was the backdrop to the massive privatization that began in the 1980s but also, of course, to the housing bubble that fuelled the crisis of 2008 and the narrative of Crashed.

As Jordà, Schularick and Taylor have documented, over the long run, real estate and mortgage credit are key drivers of cycles of leverage in global capitalism. As Brett Christophers shows us, in our “financialized” and “post-industrial” world, land and property remain the most import class of assets and the most important form, therefore, of collateral.

To sum up:

If we want to break out of the constraints imposed on us by neoliberalism’s cognitive strictures, thinking about Quinn Slobodian and Brett Christopher’s books in relation to Crashed suggests three routes: One can flout Hayek by delving into the depths of governmental machinery as Brett does so brilliantly. One can strip the magic from capitalism (entzaubern) by exposing its seamier side and the sheer grubbiness of deal-making. But we also need to defy Hayek’s insistence that the economy cannot be represented or made calculable, his Bilderverbot (the Mosaic ban on graven images). For all their many inadequacies, we must cling to the macro- in macroeconomics and macrofinance. If what we are after is an understanding of the complex forces driving the uneven and combined development of the global economy, there is no alternative.